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Wednesday, August 18, 2004

China ‘at the Edge’ of Financial Crisis: Central Bank Governor

August 17, 2004
China’s central bank governor has warned that the country is “at the edge” of a financial crisis as bad debt levels continue to rise. Speaking at a financial conference last month in Shanghai, People’s Bank of China Governor Zhou Xiaochuan said he was pleased to hear that other experts had also recognized the scale of China’s bad debt problem.

“I believe that while large-scale commercial banks are working hard, according to certain classification, their bad debts have already exceeded 40 percent, so we are at the edge of a financial crisis,” Zhou told delegates at the conference in early July. “It’s not as though you can avoid or predict it if you so desire.” Other top financial scholars and policymakers underlined his warnings during the same session. ...

Bad loans made by banks to cronies in government departments and state-owned enterprises continue to proliferate in spite of a government bailout in 1999, and the creation of asset-management companies (AMCs) to dispose of U.S.$169 billion in bad debt. Estimates of the total level of bad debt throughout the banking system vary, but overseas ratings agencies have estimated it as high as 50 percent. ... FR Reprint.

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